Single Show Cause Notice for Multiple Years Violates GST Sections 74(10) and 136; Year-wise SCNs Required

The HC held that issuance of a single show cause notice (SCN) covering multiple financial years under Sections 73/74 of the GST Act is impermissible. Each financial year is treated as a separate tax period with distinct limitation periods of 3 or 5 years. Clubbing multiple years in one SCN frustrates the statutory limitation scheme and denies the respondent the opportunity for year-wise defense, resulting in jurisdictional overreach and rendering the order void ab initio. The court clarified that SCNs must be issued based on the relevant tax period, i.e., annual returns if filed, or monthly returns if annual returns are yet to be filed. The impugned composite SCN and order were quashed for violating Sections 74(10) and 136 of the GST Act. The petition was allowed.

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ISSUES:

Whether issuance of a single show cause notice covering more than one financial year ("bunching of show cause notices") is permissible under Sections 73 and 74 of the GST Act, 2017.Whether a single assessment order can be passed for multiple financial years.Whether the limitation periods prescribed under Sections 73(10) and 74(10) of the GST Act apply separately to each financial year or can be clubbed across years.Whether issuance of composite show cause notices causes prejudice or hardship to the assessee, including in availing compounding under Section 138 or amnesty schemes under Section 128 of the GST Act.The proper interpretation of "tax period" under Section 2(106) of the GST Act in relation to issuance of show cause notices.Whether issuance of composite notices violates the statutory safeguards and results in jurisdictional overreach.

RULINGS / HOLDINGS:

The issuance of a single show cause notice for more than one financial year is impermissible under Sections 73 and 74 of the GST Act, as there is a "clear bar for 'bunching of show cause notice'".The GST Act contemplates issuance of show cause notices based on distinct "tax periods", which include monthly or yearly tax periods, but not periods extending beyond one financial year; therefore, no notice can be issued for more than one financial year.The limitation periods of three years under Section 73(10) and five years under Section 74(10) apply separately and independently to each financial year, and cannot be clubbed or carried over across years.Passing a single assessment order for multiple financial years is not permissible and results in prejudice to the assessee's rights, including inability to file compounding applications under Section 138 or avail amnesty schemes under Section 128 for particular years.The "tax period" as defined in Section 2(106) means the period for which the return is required to be furnished, i.e., monthly or annual returns, and show cause notices must be issued accordingly.Issuance of composite show cause notices covering multiple financial years frustrates the limitation scheme, prevents year-specific rebuttals, and constitutes jurisdictional overreach rendering such orders void ab initio.

RATIONALE:

The Court relied on the statutory framework of Sections 73 and 74 of the GST Act, which require issuance of show cause notices for "any period" defined as "tax period" under Section 2(106), interpreted as monthly or annual periods, but not multiple financial years combined.Sections 73(3) and 74(3) allow issuance of statements deemed to be notices for subsequent tax periods only if they share the same grounds as the initial notice, reinforcing the requirement for separate notices per tax period.The limitation provisions under Sections 73(10) and 74(10) fix separate time limits for each financial year, supporting the conclusion that notices and assessments must be year-specific.The Court referenced precedent from a Constitution Bench of the Supreme Court holding that "where an assessment encompasses different assessment years, each assessment year could be easily split up and dissected and the items can be separated and taxed for different periods," applying this principle to GST assessments.Judicial precedents from this and other High Courts (e.g., Titan Company Ltd. case and M/s. Tharayil Medicals case) were cited to emphasize that bunching of notices is impermissible and causes prejudice to the assessee's rights and statutory safeguards.The Court noted that composite notices undermine the statutory scheme by potentially extending limitation periods improperly and denying the assessee the opportunity for focused defenses and remedies per financial year.The reasoning also considered practical hardships arising from bunching, such as inability to avail compounding or amnesty schemes selectively and difficulties in gathering evidence within truncated time frames.The Court rejected the respondent's argument that "any period" includes multiple financial years, clarifying that "tax period" is tied to return filing requirements and cannot be arbitrarily extended.

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